NEW YORK, Oct 25 (Reuters) - Dean Foods Co's Morningstar business has attracted takeover interest fromMichael Foods and Mexican dairy company Grupo Lala, peoplefamiliar with the matter said, in a deal that could be valued inthe $1 billion to $1.5 billion range.

Private equity firms including Apollo Global Management LLC are also pursuing Morningstar, which makes creams,coffee creamers and other dairy products mostly under privatelabel or store brands, the people said.

Dean Foods confirmed a Reuters report last month that it isseeking a buyer for the Morningstar unit, a move that couldpresage a break-up of the largest dairy company in the UnitedStates.

The Dallas, Texas-based company, being advised by investmentbank Evercore Partners Inc on the sale process, isexpected to receive final bids for Morningstar in coming weeks,the people said.

Dean Foods is also spinning off its WhiteWave unit in aninitial public offering this week. It priced 23 million sharesat $17 each on Thursday, raising $391 million.

The spin-off of WhiteWave, which makes Horizon Organic milkand Silk soy milk, and a sale of Morningstar would leave Deanwith its Fresh Dairy Direct business, which sells milk underregional and local brands.

Morningstar had net sales of $1.3 billion in 2011, making up10 percent of Dean's overall sales of $13.1 billion.

Fresh Dairy Direct is Dean's largest business, with annualsales of $9.6 billion, but it is the most challenged, sinceselling milk is a low-margin business.

The company's stock price tumbled 27 percent in July amidconcerns over rising dairy commodity costs but then reboundedafter Dean announced the IPO of WhiteWave and reportedstronger-than-expected quarterly results.

Dean's costs are dependent on a range of volatilecommodities from fuel to dairy and passing on those costs toconsumers is not easy, since there is little brand loyalty andconsumers often choose the cheapest brand.

In 2011, the company took a $1.9 billion charge to writedown goodwill in the dairy business, which it had built upthrough acquisitions over the years. Falling demand and pricesover several years had hurt the value of that business.

(Reporting by Soyoung Kim and Greg Roumeliotis, Additionalreporting by Olivia Oran and Martinne Geller in New York;Editing by Steve Orlofsky)